UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
|X|Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 28, 1997, or
|_|Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File No. 1-13727
FFP MARKETING COMPANY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2735779
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2801 Glenda Avenue; Fort Worth, Texas 76117-4391
(Address of principal executive office, including zip code)
817/838-4700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class Name of Each Exchange on Which Registered
Common Shares, par value $0.01 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of shares held by non-affiliates of the
registrant at March 31, 1998, was $9,989,000. For purposes of this computation,
all officers, directors, and beneficial owners of 10% or more of the common
shares of the registrant are deemed to be affiliates. Such determination should
not be deemed an admission that such officers, directors, and beneficial owners
are affiliates.
Common Shares 3,779,415
Preferred Shares None
(Number of shares outstanding as of March 31, 1998)
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
(1) Financial Statements.
See Index to Financial Statements and Financial Statement
Schedules on page F-1 hereof.
(2) Financial Statement Schedules.
See Index to Financial Statements and Financial Statement
Schedules on page F-1 hereof.
Schedules other than those listed on the accompanying Index to
Financial Statements and Financial Statement Schedules are
omitted because they are either not required, not applicable, or
the required information is included in the consolidated
financial statements or notes thereto.
(3) Exhibits.
3.1 Articles of Incorporation of FFP Marketing
Company, Inc. {1 - Ex. 3.1}
3.2 Bylaws of FFP Marketing Company, Inc. {1 - Ex. 3.2}
10.1 Nonqualified Unit Option Plan of FFP Partners, L.P.
{1 - Ex. 10.1}
10.2 Form of Ground Lease with affiliated companies.
{1 - Ex. 10.2}
10.3 Form of Building Lease with affiliated companies.
{1 - Ex. 10.3}
10.4 Form of Agreement with Product Supply Services, Inc.
{1 - Ex. 10.4}
10.5 Form of Employment Agreement between FFP Partners Management
Company, Inc., and certain executive officers dated April 23,
1989, as amended July 22, 1992 {1 - Ex. 10.5}
10.6 Loan Agreement among FFP Partners, L.P., FFP Operating
Partners, L.P., Direct Fuels, L.P., and HSBC Business Loans,
Inc., dated October 31, 1997 {2 - Ex. 10.6}
10.7 Form of Lease Agreement with FFP Properties, L.P.
{2 - Ex. 10.7}
10.8 Form of Building Lease Agreement with FFP Properties, L.P.
{2 - Ex. 10.8}
21.1 Subsidiaries of the Registrant. {2 - Ex. 21.1}
27.1 Financial data schedule for 1997. {2 - 27.1}
27.2 Restated financial data schedule for years ended December 29,
1996, and December 31, 1995. {2 - 27.2}
27.3 Restated financial data schedule for three months ended
March 30, 1997, and March 31, 1996. {3}
27.4 Restated financial data schedule for six months ended
June 29, 1997, and June 30, 1996. {3}
27.5 Restated financial data schedule for nine months ended
September 28, 1997, and September 29, 1996. {3}
99.1 Financial statements of FFP Operating Partners, L.P., a wholly
owned subsidiary of the Company. (These financial
statements are being filed as an exhibit to facilitate
compliance with certain state environmental regulatory
requirements.) {3}
- -----------------------------
{1} Included in the Company's Registration Statement on Form S-4
(Registration No. 333-41709) as the exhibit indicated and
incorporated herein by reference.
{2} Included as the indicated exhibit in the Company's Annual
Report on Form 10-K for the fiscal year ended December 28,
1997, and incorporated herein by reference.
{3} Included herewith.
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this Annual Report on Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: May 5, 1998 FFP MARKETING COMPANY, INC.
(Registrant)
By: /s/Steven B. Hawkins
-----------------------------------------
Steven B. Hawkins
Vice President - Finance & Administration
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-28-1997 DEC-29-1996
<PERIOD-END> MAR-30-1997 MAR-31-1996
<CASH> 8,453 8,170
<SECURITIES> 0 0
<RECEIVABLES> 11,175 15,405
<ALLOWANCES> 937 878
<INVENTORY> 12,032 10,816
<CURRENT-ASSETS> 32,596 34,094
<PP&E> 75,811 63,360
<DEPRECIATION> 35,140 31,645
<TOTAL-ASSETS> 80,619 72,896
<CURRENT-LIABILITIES> 43,053 39,395
<BONDS> 9,798 6,791
0 0
0 0
<COMMON> 22,876 24,804
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 80,619 72,896
<SALES> 90,925 92,192
<TOTAL-REVENUES> 92,682 94,391
<CGS> 82,703 83,402
<TOTAL-COSTS> 82,703 83,402
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 84 99
<INTEREST-EXPENSE> 291 320
<INCOME-PRETAX> (1,128) (35)
<INCOME-TAX> 134 134
<INCOME-CONTINUING> (1,262) (169)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,262) (169)
<EPS-PRIMARY> (0.33) (0.05)
<EPS-DILUTED> (0.33) (0.05)
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<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-28-1997 DEC-29-1996
<PERIOD-END> JUN-29-1997 JUN-30-1996
<CASH> 8,907 6,761
<SECURITIES> 0 0
<RECEIVABLES> 12,692 13,410
<ALLOWANCES> 1,048 775
<INVENTORY> 13,046 11,265
<CURRENT-ASSETS> 35,641 31,987
<PP&E> 77,573 65,231
<DEPRECIATION> 35,986 32,551
<TOTAL-ASSETS> 84,214 72,348
<CURRENT-LIABILITIES> 44,991 35,713
<BONDS> 9,253 6,844
0 0
0 0
<COMMON> 23,216 26,838
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 84,214 72,348
<SALES> 188,756 194,874
<TOTAL-REVENUES> 192,146 199,483
<CGS> 170,216 175,021
<TOTAL-COSTS> 170,216 175,021
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 321 171
<INTEREST-EXPENSE> 648 652
<INCOME-PRETAX> (653) 2,129
<INCOME-TAX> 269 268
<INCOME-CONTINUING> (922) 1,861
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (922) 1,861
<EPS-PRIMARY> (0.24) 0.49
<EPS-DILUTED> (0.24) 0.48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-28-1997 DEC-29-1996
<PERIOD-END> SEP-28-1997 SEP-29-1996
<CASH> 7,254 8,149
<SECURITIES> 0 0
<RECEIVABLES> 15,060 13,023
<ALLOWANCES> 933 803
<INVENTORY> 12,818 11,764
<CURRENT-ASSETS> 36,227 32,859
<PP&E> 78,868 68,049
<DEPRECIATION> 37,324 33,324
<TOTAL-ASSETS> 84,299 75,259
<CURRENT-LIABILITIES> 37,354 39,525
<BONDS> 17,249 8,009
0 0
0 0
<COMMON> 22,841 26,741
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 84,299 75,259
<SALES> 283,371 287,892
<TOTAL-REVENUES> 288,073 293,993
<CGS> 254,405 258,113
<TOTAL-COSTS> 254,405 258,113
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 104 426
<INTEREST-EXPENSE> 1,108 968
<INCOME-PRETAX> (894) 2,827
<INCOME-TAX> 403 402
<INCOME-CONTINUING> (1,297) 2,425
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,297) 2,425
<EPS-PRIMARY> (0.34) 0.64
<EPS-DILUTED> (0.34) 0.63
</TABLE>
Exhibit 99.1
Financial Statements of
FFP Operating Partners, L.P.,
a wholly owned subsidiary of
FFP Marketing Company, Inc.
(with Independent Auditors' Report thereon)
{These financial statements are being filed
as an exhibit to facilitate compliance with
certain state environmental regulatory requirements.}
Index to Financial Statements
Page
Number
Independent Auditors' Report 2
Balance Sheets as of December 28, 1997, and December 29, 1996 3
Statements of Operations for the Years Ended December 28,
1997, December 29, 1996, and December 31, 1995 4
Statements of Partners' Capital for the Years Ended
December 28, 1997, December 29, 1996, and December 31, 1995 5
Statements of Cash Flows for the Years Ended December 28, 1997,
December 29, 1996, and December 31, 1995 6
Notes to Financial Statements 8
Independent Auditors' Report
The Partners
FFP Operating Partners, L.P.:
We have audited the financial statements of FFP Operating Partners,
L.P. (a Delaware limited partnership) as listed in the accompanying index. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of FFP Operating
Partners, L.P. as of December 28, 1997 and December 29, 1996, and the results of
its operations and its cash flows for each of the years in the three-year period
ended December 28, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 17, 1998
FFP Operating Partners, L.P.
Balance Sheets
December 28, 1997, and December 29, 1996
(In thousands)
1997 1996
Assets
Current Assets
Cash and cash equivalents $9,044 $7,257
Trade receivables, less allowance for doubtful
accounts
of $718 and $834 in 1997 and 1996, respectively 7,906 8,623
Notes receivable 1,163 1,198
Inventories 14,347 11,752
Prepaid expenses and other current assets 586 618
Total current assets 33,046 29,448
Property and equipment, net 25,905 34,713
Receivables from affiliated companies 11,193 12,660
Other assets, net 4,594 7,249
Total Assets $74,738 $84,070
Liabilities and Partners' Capital
Current Liabilities
Amount due under revolving credit line $0 $6,823
Current installments of long-term debt 1,208 1,587
Current installments of obligations under capital
leases 917 1,122
Accounts payable 15,208 13,424
Money orders payable 10,350 7,809
Accrued expenses 8,983 8,391
Payable to affiliated companies 1,270 834
Total current liabilities 37,936 39,990
Long-term debt, excluding current installments 21,465 7,765
Obligations under capital leases, excluding current
installments 3,110 1,653
Other liabilities 2,866 643
Total Liabilities 65,377 50,051
Commitments and contingencies
Partners' Capital
Limited partners' equity 25,046 33,944
General partner's equity 253 344
Reduction for joint debt obligations (15,938) 0
Treasury units of parent 0 (269)
Total Partners' Capital 9,361 34,019
Total Liabilities and Partners' Capital $74,738 $84,070
See accompanying notes to financial statements.
FFP Operating Partners, L.P.
Statements of Operations
Years Ended December 28, 1997, December 29, 1996, and
December 31, 1995 (In thousands)
1997 1996 1995
Revenues
Motor fuel $294,097 $308,205 $282,785
Merchandise 61,316 60,089 64,561
Miscellaneous 6,763 7,790 6,470
Total Revenues 362,176 376,084 353,816
Costs and Expenses
Cost of motor fuel 273,367 288,065 260,800
Cost of merchandise 42,987 42,503 45,542
Direct store expenses 27,944 26,710 27,703
General and administrative expenses 10,446 10,712 11,029
Depreciation and amortization 4,999 3,781 3,680
Total Costs and Expenses 359,743 371,771 348,754
Operating Income 2,433 4,313 5,062
Interest Expense 1,812 1,326 1,176
Net Income $621 $2,987 $3,886
Net income allocated to
Limited partners $615 $2,957 $3,847
General partner 6 30 39
See accompanying notes to financial statements.
FFP Operating Partners, L.P.
Statements of Partners' Capital
Years Ended December 28, 1997, December 29, 1996, and December 31, 1995
(In thousands)
Reduction
for
Joint Debt
Limited General Obliga- Treasury
Partners Partner tions Units Total
Balance, December 25, 1994 $27,140 $275 $0 $(269) $27,146
Net income 3,847 39 0 0 3,886
Balance, December 31, 1995 30,987 314 0 (269) 31,032
Net income 2,957 30 0 0 2,987
Balance, December 29, 1996 33,944 344 0 (269) 34,019
Net income 615 6 0 0 621
Distribution to partners (6,871) (69) 0 0 (6,940)
Net assets distributed in
restructuring transaction (2,642) (28) 0 269 (2,401)
Reduction of equity
attributable to reporting
of joint debt obligations
in restructuring 0 0 (15,938) 0 (15,938)
Balance, December 28, 1997 $25,046 $253 $(15,938) $0 $9,361
See accompanying notes to financial statements.
FFP Operating Partners, L.P.
Statements of Cash Flows
Years Ended December 28, 1997, December 29, 1996, and December 31,
1995 (In thousands, except supplemental information)
1997 1996 1995
Cash Flows from Operating Activities
Net income $621 $2,987 $3,886
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 4,999 3,781 3,680
Provision for doubtful accounts 131 326 451
(Gain)/loss on sales of property and
equipment (254) 19 (110)
(Gain) on sales of convenience store
operations (30) (1,778) (791)
Changes in operating assets and liabilities
(Increase)/decrease in trade receivables 586 (1,121) (1,629)
(Increase)/decrease in inventories (2,595) (925) 183
(Increase)/decrease in prepaid expenses
and other operating assets (184) 230 381
Increase/(decrease) in accounts payable 1,784 940 (44)
Increase in money orders payable 2,541 1,897 1,658
Increase/(decrease) in accrued expenses
and other liabilities 2,815 (790) (2,302)
Net cash provided by operating activities 10,414 5,566 5,363
Cash Flows from Investing Activities
Purchases of property and equipment (14,123) (6,205) (4,759)
Proceeds from sales of property and
equipment 1,213 50 169
(Increase) in receivables from
affiliated companies (5,473) (5,821) (3,478)
Investments in joint ventures and other
entities 0 0 (1,350)
Decrease in notes receivable 846 540 733
(Increase)/decrease in other assets 724 (73) (490)
Net cash (used in) investing activities (16,813) (11,509) (9,175)
continued
Cash Flows from Financing Activities
Borrowings/(payments) on revolving
credit line, net (6,823) 2,820 4,003
Proceeds from long-term debt 122,884 4,000 0
Payments on long-term debt (109,563) (2,033) (4,178)
Borrowings under capital lease
obligations 2,522 1,923 1,076
Payments on capital lease obligations (1,270) (975) (694)
Advances from affiliated companies 436 318 339
Net cash provided by financing activities 8,186 6,053 546
Net increase/(decrease) in cash and cash
equivalents 1,787 110 (3,266)
Cash and cash equivalents at beginning of
year 7,257 7,147 10,413
Cash and cash equivalents at end of year $9,044 $7,257 $7,147
Supplemental Disclosure of Cash Flow Information
Cash paid for interest during 1997, 1996, and 1995, was $1,917,000,
$1,097,000, and $1,394,000, respectively.
Supplemental Schedule of Noncash Investing and Financing Activities
During 1997, the Company distributed $6,940,000 to its partners, of
which $6,871,000 was offset against an intercompany receivable from FFP
Partners, L.P., the Company's former sole limited partner and former parent.
During 1997 in conjunction with the restructuring of FFP Partners
that resulted in the formation of FFP Marketing Company, Inc., the Company's new
parent, the Company transferred $196,000 of prepaid expenses and $18,143,000 of
land and buildings to FFP Partners, L.P. Also in connection with the
restructuring, the Company recorded a reduction in partners' capital related to
debt for which it and FFP Partners are jointly liable.
During 1996 and 1995, the Company acquired fixed assets of $200,000
and $598,000, respectively, in exchange for notes payable.
See accompanying notes to financial statements.
FFP Operating Partners, L.P.
Notes to Financial Statements
December 28, 1997, December 29, 1996, and December 31, 1995
1. Basis of Presentation
(a) Organization of Company
Until December 28, 1997, the Company was a 99%-owned subsidiary of
FFP Partners, L.P. ("FFP Partners"). On that date, FFP Partners completed a
restructuring in which the real estate owned by the Company (and which was used
in the Company's retail operations) was transferred to FFP Partners and all
subsidiaries of FFP Partners, including the Company, became subsidiaries of FFP
Marketing Company, Inc. ("FFP Marketing"). In addition, FFP Operating LLC (which
is a wholly owned subsidiary of FFP Marketing) became the general partner of the
Company. Accordingly, effective on December 28, 1997, the Company is indirectly
wholly owned by FFP Marketing, a publicly traded company with its common stock
listed on the American Stock Exchange.
The net book value of the assets and liabilities transferred to FFP
Partners in the restructuring has been reflected as a distribution in the
accompanying statements of partners' capital. Accordingly, no gain or loss was
recognized by the Company as a result of the restructuring.
The Company operates convenience stores, truck stops, and motor fuel
concessions at independently operated convenience stores over an eleven state
area. It also operates a money order company, selling money orders through its
own outlets as well as through agents; and sells motor fuel on a wholesale
basis, primarily in Texas.
(b) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to conform
to the 1997 presentation.
2. Significant Accounting Policies
(a) Fiscal Years
The Company prepares its financial statements and reports its
results of operations on the basis of a fiscal year which ends on the last
Sunday of December. Accordingly, the fiscal years ended December 28, 1997, and
December 29, 1996, consisted of 52 weeks, while the year ended December 31,
1995, consisted of 53 weeks. Year end data in these notes is as of the
respective dates above.
(b) Cash Equivalents
The Company considers all highly liquid investments with maturities
at date of purchase of three months or less to be cash equivalents.
(c) Notes Receivable
The Company evaluates the collectibility of notes receivable in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of Loans," as amended
by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures." At year end 1997 and 1996, no notes receivable
were determined to be impaired.
(d) Inventories
Inventories consist of retail convenience store merchandise and
motor fuel products. Merchandise inventories are stated at the lower of cost or
market as determined by the retail method. Motor fuel inventories are stated at
the lower of cost or market using the first-in, first-out ("FIFO") inventory
method.
The Company has selected a single company as the primary grocery and
merchandise supplier to its convenience stores and truck stops although certain
items, such as bakery goods, dairy products, soft drinks, beer, and other
perishable products, are generally purchased from local vendors and/or wholesale
route salespeople. The Company believes it could replace any of its merchandise
suppliers, including its primary grocery and merchandise supplier, with no
significant adverse effect on its operations.
The Company does not have long-term contracts with any suppliers of
petroleum products covering more than 10% of its motor fuel supply.
Unanticipated national or international events could result in a curtailment of
motor fuel supplies to the Company, thereby adversely affecting motor fuel
sales. In addition, management believes a significant portion of its merchandise
sales are to customers who also purchase motor fuel. Accordingly, reduced
availability of motor fuel could negatively impact other facets of the Company's
operations.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment acquired under
capital leases is stated at the present value of the initial minimum lease
payments, which is not in excess of the fair value of the equipment.
Depreciation and amortization of property and equipment are provided on the
straight-line method over the estimated useful lives of the respective assets,
which range from three to twenty years. Leasehold improvements are amortized on
the straight-line method over the shorter of the lease term or the estimated
useful lives of the respective assets.
(f) Investments
Investments in joint ventures and other entities that are 50% or
less owned are accounted for by the equity method and are included in other
assets, net, in the accompanying balance sheets.
(g) Intangible Assets
In connection with the allocation of the purchase price of the
assets acquired in 1987 upon the commencement of the Company's operations,
$1,093,000 was allocated as the future benefit of real estate leased from
affiliates of its former general partner. The future benefit of these leases is
being amortized using the straight-line method over 20 years, the term including
option periods, of such leases.
Goodwill of $1,524,000 and $2,040,000 at year end 1997 and 1996,
respectively, is being amortized using the straight-line method over 20 years.
The Company assesses the recoverability of goodwill by determining whether the
amortization of the balance over the remaining amortization period can be
recovered through undiscounted future operating cash flows of the acquired
operations. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill would be impacted if anticipated future operating
cash flows are not achieved.
(h) Sales of Convenience Store Operations
The Company sold the merchandise operations and related inventories
of certain convenience store locations to various third parties in exchange for
cash and notes receivable. The notes receivable generally are for terms of five
years, require monthly payments of principal and interest, and bear interest at
rates ranging from 8% to 10%. Summary information about these sales is as
follows:
Gains
--------------------------
Number Notes Total Deferred
Sold Cash Receivable Proceeds Recognized (at year-end)
(In thousands, except number sold)
1997 2 $66 $201 $267 $30 $50
1996 18 816 1,561 2,377 1,778 250
1995 10 357 543 900 791 200
Gains on sales which meet specified criteria, including receipt of a
significant cash down payment and projected cash flow from store operations
sufficient to adequately service the debt, are recognized upon closing of the
sale. Gains on sales which do not meet the specified criteria are recognized
under the installment method as cash payments are received. Gains being
recognized under the installment method are evaluated periodically to determine
if full recognition of the gain is appropriate.
Under these sales, the Company retains the real estate or leasehold
interests, and leases or subleases the store facilities (including the store
equipment) to the purchaser under five-year renewable operating lease
agreements. The Company retains ownership of the motor fuel operations and pays
the purchaser of the store commissions based on motor fuel sales. In addition,
the new store operators may purchase merchandise under the Company's established
buying arrangements.
(i) Environmental Costs
Environmental remediation costs are expensed; related environmental
expenditures that extend the life, increase the capacity, or improve the safety
or efficiency of existing assets are capitalized. Liabilities for environmental
remediation costs are recorded when environmental assessment and/or remediation
is probable and the amounts can be reasonably estimated. Environmental
liabilities are evaluated independently from potential claims for recovery.
Accordingly, the gross estimated liabilities and estimated claims for
reimbursement have been presented separately in the accompanying balance sheets
(see Note 11b).
In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 96-1, Environmental Remediation
Liabilities. SOP 96-1, was adopted by the Company on December 29, 1997, and
requires, among other things, environmental remediation liabilities to be
accrued when the criteria of SFAS No. 5, "Accounting for Contingencies," have
been met. The SOP also provides guidance with respect to the measurement of
remediation liabilities. Such accounting is consistent with the Company's
current method of accounting for environmental remediation costs, and therefore,
adoption of SOP 96-1 in 1997 did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(j) Motor Fuel Taxes
Motor fuel revenues and related cost of motor fuel include federal
and state excise taxes of $94,241,000, $100,771,000, and $98,519,000, for 1997,
1996, and 1995, respectively.
(k) Exchanges
The exchange method of accounting is utilized for motor fuel
exchange transactions. Under this method, such transactions are considered as
exchanges of assets with deliveries being offset against receipts, or vice
versa. Exchange balances due from others are valued at current replacement
costs. Exchange balances due to others are valued at the cost of forward
contracts (Note 9) to the extent they have been entered into, with any remaining
balance valued at current replacement cost. Exchange balances due to others at
year end 1997 and 1996 were $754,000 and $4,000, respectively.
(l) Income Taxes
Taxable income or loss of the Company is includable in the income
tax returns of its partners; therefore, no provision for income taxes has been
made in the accompanying financial statements.
The Company's parent is a corporation and accounts for income taxes
under the asset and liability method. The parent recognizes deferred tax assets
and liabilities for the estimated future tax consequences attributable to
differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases, as recorded on the books and records
of its subsidiaries, that are expected to reverse in future years. The Company's
parent has not currently allocated the effect of applying the asset and
liability method among its subsidiaries; however, it could elect to do so in the
future.
(m) Fair Value of Financial Instruments
The carrying amounts of cash, receivables, amounts due under
revolving credit line, and money orders payable approximate fair value because
of the short maturity of those instruments. The carrying amount of notes
receivable approximates fair value which is determined by discounting expected
future cash flows at current rates.
The carrying amount of long-term debt approximates fair value due to
the variable interest rate on substantially all such obligations.
(n) Allocation of Net Income or Loss and Cash Distributions
The Partnership Agreement of the Company provides that net income or
loss and cash distributions are to be allocated 99% to its limited partner and
1% to its general partner.
The treasury units of the Company's former parent (64,778 units, at
cost) which were being held by the Company were retired in conjunction with the
restructuring.
(o) Employee Benefit Plan
The Company has a 401(k) profit sharing plan covering all employees
who meet age and tenure requirements. Participants may contribute to the plan a
portion, within specified limits, of their compensation under a salary reduction
arrangement. The Company may make discretionary matching or additional
contributions to the plan. The Company did not make any contributions to the
plan in 1997, 1996, or 1995.
(p) Use of Estimates
The use of estimates is required to prepare the Company's financial
statements in conformity with generally accepted accounting principles. Although
management believes that such estimates are reasonable, actual results could
differ from the estimates.
(q) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles to be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of such assets to future net cash flows
expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. The adoption of this statement did not have a material impact on
the Company's financial position, results of operations, or liquidity.
(r) Revenue Recognition
The Company recognizes revenue related to motor fuel and merchandise
sales at the time of the sale.
3. Property and Equipment
Property and equipment consists of the following:
1997 1996
(In thousands)
Land and improvements $0 $6,873
Buildings and leasehold improvements 7,923 26,151
Fixtures and equipment 46,137 35,527
Construction in progress 121 0
54,181 68,551
Accumulated depreciation and (28,276) (33,838)
amortization
$25,905 $34,713
In connection with the December 1997 restructuring of FFP Partners,
all land and buildings used in the Company's retail operations were transferred
to FFP Partners.
4. Other Assets
Other assets consist of the following:
1997 1996
(In thousands)
Intangible Assets (Note 2g)
Ground leases $1,093 $1,093
Goodwill 1,524 2,040
Other 1,528 1,604
4,145 4,737
Accumulated amortization (2,274) (2,151)
1,871 2,586
Notes receivable 1,294 2,069
Claims for reimbursement of
environmental remediation costs 1,052 1,038
Investments in joint ventures and 0 1,293
other entities
Other 377 263
$4,594 $7,249
In December 1995, the Company advanced $1,200,000 to a company which
granted the Company a security interest in certain loans that were secured by
convenience stores located in areas where the Company currently has operations.
In 1997, the Company foreclosed on the loans and took title to the properties
securing the loans. In connection with the December 1997 restructuring of FFP
Partners, these properties were transferred to FFP Partners.
5. Notes Payable and Long-Term Debt
In connection with the December 1997 restructuring of FFP Partners,
FFP Partners retained the liability for the year end balances due under a bank
revolving credit facility ($7,439,000), a bank term loan ($7,905,000), and other
debt ($594,000) secured by the real estate transferred to it. However, in
accordance with SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Liabilities and Extinguishment of Liabilities," the debt
must be presented on the balance sheets of both FFP Partners and the Company
until the Company obtains a legal release as a primary obligor on the debt. At
such time and to the extent that the Company obtains a legal release, the debt
will be removed from its balance sheet with a corresponding adjustment to the
reduction for joint debt obligations that is included in partners' capital. Such
adjustment will result in an increase in partners' capital.
All other debt, including capital lease obligations, for which the
Company was liable at the time of the restructuring, was retained by the
Company.
FFP Partners has indemnified the Company against liability on the
debt retained by FFP Partners and has granted to the Company the right to offset
any payments the Company might be required to make on the debt retained by FFP
Partners against any amounts otherwise due to FFP Partners by the Company.
Although FFP Partners retained the liability for the $7,439,000 due
under the revolving credit line portion of the bank debt at the date of the
December 1997 restructuring, the Company retains availability under this
revolving credit facility. The revolving credit line provides for borrowings up
to $15,000,000, with the amount available at any time related to a borrowing
base comprised of the trade receivables and inventories of the Company and other
subsidiaries of its parent. To the extent that borrowings under this credit
facility fall below the $7,439,000 balance retained by FFP Partners, they are
treated as loans by the Company to FFP Partners and FFP Partners pays interest
to the Company on such amounts at the lender's prime rate, which is same rate
that is payable to the lender. The Company bears the interest cost on any
balances under the revolving credit facility that exceed the $7,439,000 amount.
The revolving credit facility and the bank term loan both bear
interest at the lender's prime rate, payable monthly; the term loan requires
monthly principal payments of $95,000; and both loans mature in November 2000.
The loans are subject to a Loan and Security Agreement among FFP Partners, the
Company, and another subsidiary of the Company's parent. The agreement contains
various restrictive covenants including financial covenants relating to the
maintenance of a specified minimum tangible net worth, a debt to tangible net
worth ratio, and a cash flow coverage ratio, all as defined in the agreement. As
a result of the restructuring, these ratios are calculated on a combined basis
for FFP Partners and the Company's parent. As of year end, the borrowers were
not in compliance with certain requirements under the loan agreement; the lender
has waived declaring a default due to such noncompliance. The Company's trade
accounts receivable, inventories, and its equipment not otherwise encumbered,
are pledged as collateral on the loans. In addition, the Company's other assets
are covered by a negative pledge in favor of the lender. The loans are also
secured by the assets of FFP Partners and another subsidiary of the Company's
parent.
The Company has been advised by FFP Partners that FFP Partners
expects to refinance the bank and other debt during 1998. At the time the
refinancing is completed, the Company anticipates that it will have no liability
for the refinanced obligations although it is expected to retain the revolving
credit facility for which it will be solely liable.
In addition to the foregoing debt, the Company has a loan of
$6,735,000 incurred in connection with the December 1997 acquisition of 94
operating convenience stores. The loan bears interest payable monthly at the
prime rate (8.5% at year end 1997) of a large national bank, is due in February
1999, and is secured by the assets of the 94 convenience stores. FFP Marketing
is in the process of securing long-term financing to refinance this bridge loan
and expects to complete the refinancing by mid-1998.
The aggregate fixed maturities of long-term debt for each of the
five years subsequent to 1997 are as follows:
(In thousands)
1998 $1,208
1999 8,034
2000 13,118
2001 55
2002 53
Thereafter 205
$22,673
6. Capital Leases
The Company is obligated under noncancelable capital leases
beginning to expire in 1998. The gross amount of the assets covered by these
capital leases that are included in property and equipment in the accompanying
balance sheets is as follows:
1997 1996
(In thousands)
Fixtures and equipment $6,565 $3,980
Accumulated amortization (1,641) (888)
$4,924 $3,092
The amortization of assets held under capital leases is included in
depreciation and amortization expense in the accompanying statements of
operations. Future minimum lease payments under the noncancelable capital leases
for years subsequent to 1997 are:
(In thousands)
1998 $1,237
1999 1,069
2000 994
2001 1,126
2002 435
Thereafter 0
Total minimum lease payments 4,861
Amount representing interest (834)
Present value of future minimum lease payments 4,027
Current installments (917)
Obligations under capital leases, excluding
current installments $3,110
7. Operating Leases
The Company has noncancelable, long-term operating leases on certain
locations, a significant portion of which are with related parties. Certain of
the leases have contingent rentals based on sales levels of the locations and/or
have escalation clauses tied to the consumer price index. Minimum future rental
payments (including bargain renewal periods) and sublease receipts for years
after 1997 are as follows:
Future Rental Payments
------------------------ Future
Related Sublease
Parties Others Total Receipts
(In thousands)
1998 $3,314 $2,913 $6,227 $1,062
1999 3,316 2,661 5,977 902
2000 3,311 2,545 5,856 627
2001 3,304 2,369 5,673 276
2002 3,043 1,603 4,646 51
Thereafter 1,837 9,579 11,416 29
$18,125 $21,670 $39,795 $2,947
Total rental expense and sublease income were as follows:
Rent Expense
------------------------
Related Sublease
Parties Others Total Receipts
(In thousands)
1997 $915 $922 $1,837 $1,370
1996 727 742 1,469 1,154
1995 849 735 1,584 843
8. Accrued Expenses
Accrued expenses consist of the following:
1997 1996
(In thousands)
Motor fuel taxes payable $5,655 $5,453
Accrued payroll and related expenses 927 806
Other 2,401 2,132
$8,983 $8,391
9. Futures and Forward Contracts
The Company is party to commodity futures contracts with off-balance
sheet risk. Changes in the market value of open futures contracts are recognized
as gains or losses in the period of change. These investments involve the risk
of dealing with others and their ability to meet the terms of the contracts and
the risk associated with unmatched positions and market fluctuations. Contract
amounts are often used to express the volume of these transactions, but the
amounts potentially subject to risk are much smaller.
From time-to-time the Company enters into forward contracts to buy
and sell fuel, principally to satisfy balances owed on exchange agreements (Note
2k). These transactions, which together with futures contracts are classified as
operating activities for purposes of the statements of cash flows, are included
in motor fuel sales and related cost of sales and resulted in net gains as
follows:
(In thousands)
1997 $430
1996 363
1995 87
Open positions under futures and forward contracts were not
significant at year end 1997 and 1996.
10. Related Party Transactions
Until completion of the December 1997 restructuring of FFP Partners,
the Company reimbursed its general partner (and its affiliates) for salaries and
related costs of executive officers and others and for expenses incurred by them
in connection with the management of the Company. These expenses were $763,000,
$745,000, and $727,000, and for 1997, 1996, and 1995, respectively.
From time to time, the Company makes advances to and receives
advances from its parent and other subsidiaries of its parent. Such advances are
reflected in receivables from or payables to affiliated companies in the
accompanying balance sheets. Prior to 1996, the Company did not charge or pay
interest on these advances. Beginning in 1996, interest, at a rate equal to the
interest rate on the Company's bank debt, was charged or paid on such balances.
Miscellaneous income includes $706,000 and $655,000 in 1997 and 1996,
respectively, of interest income on advances to affiliates.
In July 1991, the Company entered into an agreement with an
affiliated company whereby the affiliated company sells alcoholic beverages at
the Company's stores in Texas. Under Texas law, the Company is not permitted to
hold licenses to sell alcoholic beverages in Texas. The agreement provides that
the Company will receive rent and a management fee based on the gross receipts
from sales of alcoholic beverages at its stores. In July 1992, the agreement was
amended to be for a term of five years commencing on the date of amendment. The
sales recorded by the affiliated company under this agreement were $8,330,000,
$8,240,000, and $9,116,000, and in 1997, 1996, and 1995, respectively. The
Company received $1,355,000, $1,265,000, and $1,217,000, in 1997, 1996, and
1995, respectively, in rent, management fees, and interest, which are included
in miscellaneous revenues in the statements of operations. After deducting cost
of sales and other expenses related to these sales, including the amounts paid
to the Company, the affiliated company had earnings of $83,000, $82,000, and
$91,000 in 1997, 1996, and 1995, respectively, as a result of these alcoholic
beverage sales. Under a revolving note executed in connection with this
agreement, the Company advances funds to the affiliated company to pay for the
purchases of alcoholic beverages. Receipts from the sales of such beverages are
credited against the note balance. The revolving note provides for interest at
0.5% above the prime rate charged by a major financial institution and had a
balance of $426,000 and $420,000 at year end 1997 and 1996, respectively.
The Company purchases certain goods and services (including
automobiles, office supplies, computer software and consulting services, and
fuel supply consulting and procurement services) from related entities.
Purchases of these products and services from other subsidiaries of the
Company's parent were $434,000, $614,000, and $197,000 and from other related
entities were $206,000, $113,000, and $186,000 in 1997, 1996, and 1995,
respectively. In 1997 the Company purchased $2,224,000 of motor fuel from
another subsidiary of the Company's parent and sold $498,000, $1,822,000, and
$50,000 of motor fuel to this same subsidiary in 1997, 1996, and 1995,
respectively. The Company believes all such purchases and sales were made on
terms and at prices at least as favorable as could have been obtained from
unrelated third parties.
As a part of its merchandise sales activities, the Company supplies
its private label cigarettes on a wholesale basis to other retailers who do not
operate outlets in its trade areas and pays them rebates based on the volume of
cigarettes purchased. In 1997, 1996, and 1995, the Company paid $-0-, $14,000,
and $51,000, respectively, of such rebates to a company on whose Board one of
the Company's executive officers serves. The amount of rebates paid to this
company was calculated in the same manner as the rebates paid to non-related
companies.
In 1980 and 1982, certain companies from which the Company acquired
its initial base of retail outlets granted to a third party the right to sell
motor fuel at retail for a period of 10 years at self-serve gasoline stations
owned or leased by the affiliated companies or their affiliates. All rights to
commissions under these agreements and the right to sell motor fuel at wholesale
to the third party at such locations were assigned to the Company in May 1987 in
connection with the acquisition of its initial base of retail operations. In
December 1990, in connection with the expiration or termination of the
agreements with the third party, the Company entered into agreements with a
company owned and controlled by the Chairman of the general partner and members
of his immediate family, which grant to the Company the exclusive right to sell
motor fuel at retail at these locations. The terms of these agreements are
comparable to agreements that the Company has with other unrelated parties. The
Company paid this affiliated company commissions related to the sale of motor
fuel at these locations of $323,000, $277,000, and $261,000, in 1997, 1996, and
1995, respectively.
During 1995, the Company purchased four parcels of land, including a
building and petroleum storage tanks and related dispensing equipment, from a
company controlled by the Chairman of the general partner and members of his
immediate family. The Company paid a total of $116,000 for the real estate and
related improvements. The Company is operating one of these locations as a
convenience store and one as a self-service motor fuel outlet and intends to
operate the other two as either convenience stores or self-service motor fuel
outlets. The purchase price was determined by reference to similar properties
acquired by the Company from unrelated parties.
During 1996, the Company charged to expense $611,000 to reimburse
various related companies for legal fees that benefited the Company. Of this
amount, the Company paid $225,000 during 1996 and the remaining $386,000 in
1997.
11. Commitments and Contingencies
(a) Uninsured Liabilities
The Company maintains general liability insurance with limits and
deductibles management believes prudent in light of the exposure of the Company
to loss and the cost of the insurance.
The Company self-insures claims up to $45,000 per year for each
individual covered by its employee medical benefit plan for supervisory and
administrative employees; claims above $45,000 are covered by a stop-loss
insurance policy. The Company also self-insures medical claims for its eligible
store employees. However, claims under the plan for store employees are subject
to a $1,000,000 lifetime limit per employee and the Company does not maintain
stop-loss coverage for these claims. The Company and its covered employees
contribute to pay the self-insured claims and stop-loss insurance premiums.
Accrued liabilities include amounts management believes adequate to cover the
estimated claims arising prior to a year-end, including claims incurred but not
yet reported. The Company recorded expense related to these plans of $295,000,
$271,000, and $353,000, in 1997, 1996, and 1995, respectively.
The Company is covered for worker's compensation in all states
through incurred loss retrospective policies. Accruals for estimated claims
(including claims incurred but not reported) have been recorded at year end 1997
and 1996, including the effects of any retroactive premium adjustments.
(b) Environmental Matters
The operations of the Company are subject to a number of federal,
state, and local environmental laws and regulations, which govern the storage
and sale of motor fuels, including those regulating underground storage tanks.
In September 1988, the Environmental Protection Agency ("EPA") issued
regulations that require all newly installed underground storage tanks be
protected from corrosion, be equipped with devices to prevent spills and
overfills, and have a leak detection method that meets certain minimum
requirements. The effective commencement date for newly installed tanks was
December 22, 1988. Underground storage tanks in place prior to December 22,
1988, must conform to the new standards by December 1998. The Company has
implemented a plan to bring all of its existing underground storage tanks and
related equipment into compliance with these laws and regulations and currently
estimates the costs to do so will range from $1,444,000 to $1,764,000 during
1998. The Company anticipates that substantially all these expenditures will be
capitalized as additions to property and equipment. Such estimates are based
upon current regulations, prior experience, assumptions as to the number of
underground storage tanks to be upgraded, and certain other matters. At year end
1997 and 1996, the Company recorded liabilities for future estimated
environmental remediation costs related to known leaking underground storage
tanks of $644,000 in other liabilities. Corresponding claims for reimbursement
of environmental remediation costs of $644,000 were recorded in 1997 and 1996,
as the Company expects that such costs will be reimbursed by various
environmental agencies. In 1995, the Company contracted with a third party to
perform site assessments and remediation activities on 35 sites located in Texas
that are known or thought to have leaking underground storage tanks. Under the
contract, the third party will coordinate with the state regulatory authority
the work to be performed and bill the state directly for such work. The Company
is liable for the $10,000 per occurrence deductible and for any costs in excess
of the $1,000,000 limit provided for by the state environmental trust fund. The
Company does not expect that the costs of remediation of any of these 35 sites
will exceed the $1,000,000 limit. The assumptions on which the foregoing
estimates are based may change and unanticipated events and circumstances may
occur which may cause the actual cost of complying with the above requirements
to vary significantly from these estimates.
During 1997, 1996, and 1995, environmental expenditures were
$1,665,000, $2,019,000, and $1,003,000, respectively (including capital
expenditures of $1,267,000, $1,456,000, and $644,000), in complying with
environmental laws and regulations.
The Company does not maintain insurance covering losses associated
with environmental contamination. However, all the states in which the Company
owns or operates underground storage tanks have state operated funds which
reimburse the Company for certain cleanup costs and liabilities incurred as a
result of leaks in underground storage tanks. These funds, which essentially
provide insurance coverage for certain environmental liabilities, are funded by
taxes on underground storage tanks or on motor fuels purchased within each
respective state. The coverages afforded by each state vary but generally
provide up to $1,000,000 for the cleanup of environmental contamination and most
provide coverage for third-party liability as well. The funds require the
Company to pay deductibles ranging from $5,000 to $25,000 per occurrence. The
majority of the Company's environmental contamination cleanup activities relate
to underground storage tanks located in Texas. Due to an increase in claims
throughout the state, the Texas state environmental trust fund has significantly
delayed reimbursement payments for certain cleanup costs after September 30,
1992. In 1993, the Texas state fund issued guidelines that, among other things,
prioritize the timing of future reimbursements based upon the total number of
tanks operated by and the financial net worth of each applicant. The Company has
been classified in the category with the lowest priority. Because the state and
federal governments have the right, by law, to levy additional fees on fuel
purchases, the Company believes these clean up costs will ultimately be
reimbursed. However, due to the uncertainty of the timing of the receipt of the
reimbursements, the claims for reimbursement of environmental remediation costs,
totaling $1,052,000 and $1,038,000 at year end 1997 and 1996, respectively, have
been classified as long-term receivables and are included in other assets in the
accompanying balance sheets. (c) Other
The Company is subject to various claims and litigation arising in
the ordinary course of business, particularly personal injury and employment
related claims. In the opinion of management, the outcome of such matters will
not have a material effect on the financial position or results of operations of
the Company.
